EU eyes end of energy tax waivers for air and sea transport sectors

British Airways planes sit on the idle at Terminal 5, Heathrow Airport, Central London, Britain, 9 September 2019. [Will Oliver/EPA/EFE]

The European Union is studying a reform of energy taxes to align them with climate targets, an EU document showed, listing as possible measures higher minimum tax rates, fossil fuel levies and the end of waivers for the air and sea transport sectors.

The document, seen by Reuters, was prepared by the Finnish presidency of the EU ahead of a meeting of the bloc’s finance ministers on Saturday (7 September)  in Helsinki, which will discuss the matter.

EU rules on energy taxation have not changed for more than 15 years and they appear “outdated and poorly adapted to climate change challenges and developments in energy policy at EU level,” the document says.

In the last decade, EU countries have led the global shift towards renewable energy and set up the world’s largest emissions trading system to price carbon and reduce reliance on more polluting fuels.

But their taxes have not reflected these changes, as existing taxation “does not differentiate between renewable and carbon-intensive sources of electricity,” the document says.

The confidential paper, which is not binding on EU authorities, urges a review of minimum tax rates for energy products, which currently differ among EU states and do not reward sources of energy for their efficiency.

“The minimum rates for electricity and heating fuels, for example, are too low to give an adequate price signal to energy users,” discouraging investment in energy efficiency, the document says.

It also calls for an end to energy tax exemptions granted to the aviation and maritime transport sectors in the EU, as they are “not in line with the decarbonization objectives of the Union’s transport policies.”

By increasing taxes on more polluting energy products, the EU could more effectively contribute to the fight against climate change, supporters of the plan say.

Ambitious targets for reducing carbon emissions by at least 50% by 2030 are part of the agenda of the new European Commission which will take office in November.

However, opposition from some of the 28 EU states has in the past blocked energy tax reforms.

A plan from the EU executive to revise energy taxes was struck down in 2015, as eastern European states who rely on cheaper carbon fuel feared higher costs and Western countries were keen to protect some of their transport industries against global competition.

Opposition to changing the existing rules, which date back to 2003, is likely to remain strong, but the Commission’s president-designate Ursula von der Leyen has promised big changes and is expected to invest much of her political capital on the reform.

“It has been repeated time and again that we need to tax resource use more and labor less. It’s time to do it. We hope that the future review of the energy tax directive will support this objective,” said Johan Barros, Tax Policy Manager at Accountancy Europe, a trade association.

EU tax overhauls are made more difficult by provisions that require unanimous support from all member states to carry them out. Von der Leyen has called for ending these provisions and a decision by majority.

A confidential work program prepared by Commission officials before von der Leyen’s appointment in July envisages legislative proposals to end tax exemptions for air and sea transport by early 2020, and the review of minimum tax rates for energy products by the end of next year.

In both cases, the overhauls should be decided by majority, the document said.

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